• Wild volatility in markets
  • The dollar index declines- Many commodity prices rebound
  • Boomerang moves in precious metals will all posting double-digit percentage gains- Copper gains
  • Energy moves higher except for gasoline and ethanol
  • Agricultural commodities move mostly higher on the week


The weekly spreadsheet is attached below.

We are experiencing the most challenging period of our lifetimes. It is so important that we all avoid fear and take a reasonable, rational, and logical approach to everything we do at this time. Remember the words of FDR in his 1933 inaugural address, “the only thing to fear is fear itself.” Volatility in markets continues to be wild. Keep stops tight and take profits when they are on the table.

There will be no weekly report next Wednesday, April 1. Instead, I will be posting the quarterly reports next week and will return with the next weekly report on Wednesday, April 8.


Summary and highlights:


On Thursday, March 19, stocks posted marginal gains. The DJIA was 0.95% higher, while the S&P 500 moved 0.47% to the upside. The NASDAQ posted a 2.30% gain, but the most substantial increase came in the Russell 2000, which was 6.82% higher. The US 30-Year Treasury bond futures moved 3-10 higher to 171-08. The dollar index continued to surge as a flight to quality took it to a high of 103.70. The index settled at 103.605 near the high of the session. Grains all vaulted higher with CBOT wheat 26.75 cents higher, soybean up 17.75 cents and corn 19.25 cents per bushel higher. Crude oil had its biggest one-day gain in history as the price of nearby NYMEX futures gained $4.85 per barrel. Heating oil and gasoline prices moved higher. However, gasoline and distillates did not keep pace with crude oil, sending crack spreads lower. Ethanol posted a gain and moved back to just above $1 per gallon. Natural gas was marginally higher after the EIA reported a withdrawal of only nine bcf from storage. Silver and palladium posted gains, but gold and platinum prices were a bit lower on the session. Copper traded below $2 per pound for the first time since early 2016 but closed at $2.1855 per pound as the red metal bounced substantially from the new lows. Cattle and lean hog futures prices all moved up the limit on the day. Coffee, FCOJ, and lumber prices gained, but cotton, sugar, and cocoa fell. Bitcoin was $900 higher to $6,240 per token. Late Thursday, Nikki Haley resigned from the board of Boeing as she is opposed to a government bailout. The company is pursuing aid from Washington, and the move is symbolic and could set the stage for selling in stocks on Friday.

On Friday, California and New York were in lockdown as the number of cases of Coronavirus continues to mount. Stocks moved lower on the final session of the week. The DJIA fell 4.55%, the S&P 500 lost 4.34%, and NASDAQ was down 3.79%. The Russell 2000 moved 4.22% to the downside. The US 30-Year Treasury bonds were 5-15 higher to 178-03. The dollar index rose above the early 2017 high, peaked at 103-825, and settled at 103.502. Corn posted a marginal loss, but soybean and wheat prices moved higher. Crude oil fell sharply on Friday with the expiring April futures contract probing below the $20 per barrel level. Gasoline fell more than heating oil. Natural gas slipped along with ethanol futures. Gold and silver posted small gains, and platinum and palladium prices moved to the upside. Copper slipped to settle at $2.1715 on the May futures contract. Meat prices moved significantly higher on the session. Cotton fell to a lower low, but FCOJ, coffee, sugar, cocoa, and lumber all posted gains. Bitcoin was $30 lower to $6,210 per token.

On Monday, stocks continued to decline as the number of cases and fatalities in Europe and the US rose. However, market participants were hopeful that a slight decline in the number of deaths in Italy could be the start of a trend that the impact of Coronavirus peaked in the European nation. All of the leading indices fell, but the NASDAQ only fell by 0.27%, and the Russell 2000 was 1.13% lower. The S&P 500 and DJIA fell around 3% on the first session of the week. The June US 30-Year Treasury futures moved 3-16 higher to 179-16. The dollar index rose to a new high of 103.96, the highest level since 2002, and settled at 103.315. Corn fell 0.25 cents on the back of the price carnage in the gasoline futures market as the grain in the primary ingredient in ethanol in the US. Ethanol futures fell to new lows below 90 cents per gallon on the May futures contract. Meanwhile, soybeans and wheat prices both moved over 20 cents per bushel higher on the session. Crude oil rose to just below the $24 per barrel level, but an analyst on CNBC suggested that the price of the energy commodity could fall to zero or below as storage becomes unavailable. Gasoline fell to below 38 cents per gallon, while heating oil futures edged lower. Natural gas made a new low at $1.519 per MMBtu. The price destruction in the energy commodities continued to take prices to incredible levels on the downside. Copper fell sharply with the May contract reaching $2.0205 and settling around the $2.10 level. Precious metals exploded higher as the stimulus is rocket fuel for the sector. Gold rose by over $80 per ounce; silver was over 90 cents higher, platinum gained around $15, while palladium rallied over $45 per ounce. Cattle and hog futures moved up the limit. Cotton was lower as the price approaches the 50 cents per pound level. All of the other soft commodities posted gains with FCOJ, sugar, coffee, cocoa, and lumber moving higher. Coffee futures were above the $1.20 per pound level. Bottlenecks at South American ports because of Coronavirus is likely lifting the prices of many of the agricultural commodities. Bitcoin was $90 higher to $6,300 per token. Congress had not gotten its act together on a stimulus package as Democrats and Republicans stalled on issues related to corporate bailouts and other factors. The longer it takes for Congress to act, the more turmoil is likely to follow in the US markets.

On Tuesday, stocks posted explosive gains as Congress, and the Senate appeared to make progress on a massive stimulus package. At the same time, President Trump said that he would like to see people go back to work by Easter. The DJIA was 11.37% higher, the S&P 500 rose 9.38%, and the NASDAQ gained 8.12%. The Russell 2000 was up 9.39% on the session. The gains were the most substantial since the 1930s. The June US 30-Year Treasury Bond fell 1-22 to 177-31. The June dollar index fell to the 102 level and settled at 102.467. Corn and soybeans rose marginally, but heat posted a one-cent decline on the session. Crude oil and oil products were higher, but gasoline remained weak, with the price of May futures at just over 51 cents per gallon wholesale. Gold was explosive as the yellow metal settled along $100 per ounce higher. Silver gained over $1 per ounce. Platinum moved $75 higher, and palladium was an incredible $230 per ounce above its closing level from the previous session. Cattle moved up the limit, while lean hogs were 1.85 cents per pound higher. All of the soft commodities posted gains with cotton, FCOJ, coffee, sugar, cocoa, and lumber prices stronger. Bitcoin moved $435 higher to $6,745 per token. Meanwhile, the data on the number of infections and deaths from Coronavirus remained grim as they mounted on March 24.

On Wednesday, news that Congress had agreed on a $2 trillion package lifted markets, but at the end of the day, Senator Bernie Sanders was insisting on significant changes as he insisted that the deal amounted to “corporate welfare.” The DJIA was 2.30% higher, the S&P 500 moved 1.15% to the upside, but NASDAQ fell 0.45%. The Russell 2000 gained 1.26%, but the markets were still waiting for the passage of the stimulus package and Friday’s unemployment data, which will be earth-shattering. The short squeeze in the stock market continued to lift prices. The Governor of California said that one million people applied for benefits since March 13. The June US 30-Year Treasury Bond futures were 1-15 lower to 177-12. The June dollar index futures contract fell sharply and settled at the 100.997 level. Soybeans edged 5.25 cents per bushel lower, while corn rose 1.25 cents. Wheat rose by 18.5 cents per bushel on supply fears around the world. Crude oil edged a bit higher with products, gasoline made the most significant recovery with the price rising to over 60 cents per gallon on the May futures contract. Natural gas was unchanged on the session, and ethanol posted a marginal gain. Gold moved lower after the explosive gains earlier in the week. Silver, platinum, and palladium were moved higher, with an explosive move in palladium that took the metal over $460 per ounce higher on the session. Copper gained around three cents and the price rose above the $2.20 per pound level. June live cattle posted a small loss along with May feeder cattle futures. June lean hogs fell 1.25 cents. Cocoa and lumber prices declined, while cotton, FCOJ, coffee, and sugar futures posted gains. Coffee and FCOJ both gained over four cents on the session. Bitcoin was $85 lower to $6,660 per token.


Weekly Spreadsheet:

Copy of Spreadsheets for the The Hecht Commodity Report March 25, 2020

Stocks and Bonds

The selling continued over the past week as the number of cases of Coronavirus increased. Sadly, the number of fatalities also move higher; even those the mortality rate fell as it is a function of the number of tests, which has increased. However, as the government moved towards a relief package, stocks exploded higher and would up with gains compared to last week’s levels. Volatility has been wild in stocks, bonds, and markets across all asset classes.

Shutdowns of major US cities and states have caused economic activity to come to a halt. The same situation in Europe and other parts of the world creates a global financial crisis, which is a symptom of the virus. While monetary and fiscal policy measures are attempting to address the crisis, the world is waiting for effective treatments and vaccines that save lives and stop the spread of infections. The economic fallout from the crisis is unprecedented, and the price tag will be massive.


The S&P 500 rose 3.23% last week. The NASDAQ was 5.64% higher, and the DJIA posted a 6.54% gain. The recent massive decline in the stock market reflects the global pandemic but is only a symptom of the underlying problem. We should expect volatility to continue until the situation improves. Chinese stocks moved significantly higher over the past week. China was ground zero for Coronavirus in January and February, but the epicenter shifted to Europe and the US. The Chinese stock market is a dubious guide for conditions in the world’s most populous nation. Government intervention in China is the norm rather than the exception.

Source: Barchart

As the chart illustrates, the China Large-Cap ETF product (FXI) was trading at the $37.33 level on Wednesday, which was 9.89% higher than the closing level on March 18. The FXI will continue to move lower or higher, depending on developments on the spread of the virus in the current environment as all equities are under siege. However, China could be propping up the value of their companies in the stock market.

US 30-Year bonds rose over the past week as volatility and dislocations have become the norm in the debt market. On Wednesday, March 25, the June long bond futures contract was at the 177-12 level, up 4.22%. Bonds have traded in a wide range. The volatility in the bond market is unprecedented. June bonds traded to a new high at 191-22 on March 9. The continuous contract traded to a peak of 193-06.

The Fed continues to fire liquidity bazookas into the financial system to stabilize markets as the crisis unfolds. The ECB also began increasing QE to the tune of 750 billion euros last week. Trillions of dollars of liquidity are flowing into the system. The Fed could expand its QE program to include corporate bonds, as Europe has over the past years. The Fed will also be purchasing municipal bonds when necessary.

Short-term US rates are now at zero percent with the European deposit rate at negative 50 basis points. QE in the current environment is above the level following the 2008 financial crisis. The end of the crisis will come when the pandemic recedes. The month of March is the worst since back in the 1930s, during the Great Depression. What is rattling the markets is the uncertainty of the government’s response to the crisis.

Open interest in the E-Mini S&P 500 futures contracts fell by 37.17% since March 17 after significant gains over past weeks. Open interest in the long bond futures fell by 8.59% over the past week. The declines were because of risk-off and the roll to June futures. Market participants may have used the recent rally to continue closing risk positions. The VIX continued to reflect the high level of price variance during the week as the volatility index was at the 63.95 level on March 25, 16.35% lower over the period after the massive move to the upside over the recent weeks. The VIX traded to a high of 85.47 on March 18, the highest level since 2008. During the height of the 2008 crisis, the VIX reached 89.53. Option premiums are at the highest level in years.

As I wrote last week, “I had been advocating buying the VIX and VIX-related products when volatility is low, and the stock market was making new highs. Buying volatility on dips and taking profits on rallies had been the optimal approach over the past months. I have only traded these products from the long-side and sold all positions after the explosive move in the VIX. The gains in the volatility instruments covered many losses in other markets.

At the 66.04 level, the VIX is not at a level that offers any value and is nowhere near the buy zone, but I would not go short the VIX in this environment. I took profits on VIX-related instruments on a scale-up basis over the past weeks.

The stock market is waiting for fiscal programs that will provide some degree of certainty for the many companies facing bankruptcy at a time when economic activity has stopped in the United States, an unprecedented event. The final details of terms of bailouts will determine the path of least resistance for the shares of companies. I expect that bailout packages will come with more than a few strings. Stocks buybacks will become a no-no, the government could take an equity interest in companies, and we could find government representatives and regulators on the board of many companies. At the same time, a credit crisis will emerge as many companies borrowed significant amounts from banks and financial institutions at historically low interest rates over the past years. The energy sector, and other industries, will not be able to service debt after the substantial shock to the system. The businesses that are essential for the national security of the US will be first in line for bailouts. At the same time, companies that were good citizens and supported employees during the challenging period should also receive aid. The bottom line is that politicians in Washington DC will determine what companies survive in the coming weeks and months. When it comes to the US deficit, and others around the world, the explosive costs from Coronavirus could change tax structure and social programs. We will look back at Coronavirus as a watershed event in the US and around the world.

The heroes do not sit in Washington DC or world and state capitals. They are in hospitals, laboratories, essential services, factories, and the supply chain that are treating the sick working on a vaccine and keeping the population safe and supplying food and services to the communities in the US and around the globe.


The dollar and digital currencies

As the impact of the global pandemic caused worsening conditions in Europe and the United States over the past week, a flight to quality lifted the value of the dollar index. However, the uncertainty caused massive price volatility in the foreign exchange arena. The index has an almost 58% exposure to the euro. As Europe is also suffering in the crosshairs of Coronavirus, the dollar rose to the highest level since 2002 when it traded to a peak of 103.960 on March 23.

The June dollar index traded to a new low of 94.53 on March 9, which was the lowest level since October 2018. A close above 99.815 at the end of March would result in a bullish reversal in the dollar index on the monthly chart.

Source: CQG

The monthly chart highlights the move to the upside and bullish technical pattern in the dollar index created by flight to quality action in markets. The price action in the dollar is a validation of its position as the world’s reserve currency.

Technical resistance on the continuous contract stood at the 103.815 level with support at the recent low of 94.61 on the weekly and monthly charts. The dollar index fell back to 100.997 on March 25 after exploding from the recent low. Open interest in the dollar index futures contract moved 11.91% higher over the past week after an almost 44% plunge in the previous report.

In the current environment, monetary policy actions had no noticeable impact on financial markets, at first, but over the past few days they have calmed markets. Monetary and fiscal stimulus are making a bad situation better than they may have been as Coronavirus spreads and the number of infections rises. The fiscal programs have the potential to have the most impact on individuals and small businesses, as well as companies that have seen a sudden halt in revenues. The fallout will likely hang over markets for years, but as sentiment is the most significant factor in the path of least resistance of stocks and other asset prices, we could see a sharp recovery in markets when the virus is under control. When it comes to currencies, the flood of liquidity from central banks is likely to have a long-term impact on the values of the foreign exchange instruments that reflect the full faith and credit of countries that issue the legal tender. As fiscal and monetary policies will increase deficits, the values are likely to decline as an asset class.

The euro currency was 0.17% lower against the dollar in volatile conditions since March 18 on the June futures contract. I expect continued volatility in the dollar versus the euro currency pair. The pound was 2.47% higher against the dollar after a plunge of 9.54% last week. Countries around the world are sealing their borders to control the spread of the virus. Billions of people are remaining in their homes.


Bitcoin and the digital currency asset class recovered over the past week after moving significantly lower over the past week in sympathy with risk-off conditions. Bitcoin was trading at the $6,639.25 level as of March 25, as it recovered by 26.78% after falling 33% in last week’s report. The cryptocurrency failed at over the $10,000 level, as all asset prices dropped. Ethereum also recovered as it posted a 19.92% gain after moving lower by 39.94% last week. Ethereum was at $136.67 per token on Wednesday. The market cap of the entire asset class moved 22.46% higher after losing 31.74% last week. Bitcoin outperformed the entire asset class since March 18. The number of tokens increased by 32 to 5256 tokens since March 18. In late 2017 the overall market cap was at over $800 billion with a fraction of the number of tokens available today. On Wednesday, the market cap stood at around $184.231 billion. Open interest in the CME Bitcoin futures fell by 14.45% since last week. All logic and traditional relationship tend to go out the window during periods of turmoil in markets.

The Canadian dollar moved 2.61% higher since last week after the decline on the back of the falling knife in oil. Open interest in C$ futures fell by 32.17% over the period as Canada closed its borders. The C$ is highly sensitive to commodity prices as Canada is a mineral-rich nation that also produces significant quantities of energy and agricultural products. Weakness in commodities prices accounted for the decline in the C$ over recent weeks. Risk-off conditions caused a decrease in open interest.

The Australian dollar is also a commodity-based currency with a high degree of sensitivity to China’s economy. The A$ was 3.22% higher since last week after tanking 10.83% in the previous report. The geographical proximity to China makes the Australian dollar sensitive to the Coronavirus and accounts for its decline. Australia has experienced an outbreak of the virus.

The British pound rose 2.47% after a decline of 9.54% last week as the number of cases in the UK rise.

The global pandemic has hit emerging markets hard. The Brazilian real recovered by 4.09% over the last week after falling 8.60% last week. The April Brazilian currency was trading at the $0.199600 level after falling to a new low at $0.19035. The real is a critical factor when it comes to the commodities that the South American nation produces and exports to the world. Coffee, sugar, oranges, and a host of other markets are likely to move higher or lower with any significant changes in the direction of the Brazilian real over the coming weeks.


Precious metals exploded higher over the past week after significant declines in last week’s report. The four exchange-traded metals all posted incredible gains over the past week.


Precious Metals

Massive injections of liquidity into the global financial system to stabilize markets comes with a price tag. Deficits will swell, and the value of all world currencies that derive their values from the full faith and credit of the governments that price legal tender could decline significantly in the aftermath of the current crisis. Over the past week, gold, silver, palladium, and platinum prices experienced double-digit percentage recoveries. Rhodium recovered after trading down to $2000 per ounce during the week.

Gold rose 10.52% over the past week after a 10.01% decline in the previous report on the back of risk-off conditions. Silver exploded 26.34% since March 18 after tanking 29.83% in last week’s report. April gold futures were at $1633.40 per ounce level on Wednesday, while March silver was $14.873 per ounce. Both metals could experience further periods of risk-off price action in the coming days and weeks, but the tidal wave of liquidity should eventually be bullish for the prices of the metals that have long histories as means of exchange.

April gold futures reached a new peak at $1704.30 on March 9 as fear gripped the oil markets, and the energy commodity became a falling knife. The yellow metal declined in the risk-off environment and came back strong. May silver rose to $19.005 on February 24 before the price suffered a substantial correction sending it to a low of $11.64 per ounce on May 18 before recovering. Gold underperformed silver over the past week after the silver-gold ratio reached a new modern-day high as risk-off selling hit the silver market. I will continue to add to long physical positions in gold, silver, and platinum, but will use wide scales. I will only trade leveraged derivatives and mining stocks on a short-term basis with tight stops over the coming weeks.

The price of April platinum posted a recovery of 23.22% since last week after plunging by 30.43% in the previous report.  Platinum continued to be the laggard in the precious metals sector as it fell to its lowest price level in seventeen years. April futures moved back to the $745.50 per ounce level on March 25. The level of technical resistance is now at $800 on the April futures contract. Support in platinum is currently at $562 per ounce, last week’s low. Rhodium is a byproduct of platinum, and the price of the metal had been in a bull market since early 2016. The price of rhodium fell to a low of $2,000 and returned to a midpoint price of $7,500 per ounce on March 25, up $2,750 or 57.90% after falling 60.58% last week. Rhodium fell by almost $10,000 per ounce over a short period when it reached the low. Palladium blasted 57.09% higher over the past week after suffering a 35.83% loss in last week’s report. The price traded to a new peak at $2815.50 on February 27 on the nearby futures contract. June palladium settled at the $2277.70 per ounce level on Wednesday.

Open interest in the gold futures market moved 4.63% lower over the past week. The metric moved 4.08% lower in platinum after significant declines in recent weeks as longs exited positions. The total number of open long and short positions fell 13.80% in the palladium futures market after substantial declines over the past two weeks. Silver open interest declined 9.59% over the period after significant declines over the past weeks. The significant decreases in open interest in all four metals reflect a continuation of risk-off conditions as investors and traders move to the sidelines.

The silver-gold ratio moved lower over the past week.

Source: CQG

The daily chart of the price of April gold divided by May silver futures shows that the ratio was at 111.57 on Wednesday, down 12.50 from the level on March 18. The ratio traded to over the 124:1 level on the high. The long-term average for the price relationship is around the 55:1 level. The ratio rose to the highest level since futures began trading in 1974 as the price of silver tanked recently.

Platinum and palladium prices recovered over the past week. June Palladium was trading at a premium over April platinum with the differential at the $1,532.20 per ounce level on Wednesday, which widened since the last report. April platinum was trading at an $887.90 discount to April gold at the settlement prices on March 25, which also widened since the previous report.

The price of rhodium, which does not trade on the futures market, rebounded to the $7,500 per ounce level on Wednesday, up $2,750 per ounce or 57.90% on the week. Rhodium is a byproduct of platinum production. The low price of platinum caused a decline in output in South African mines, creating a shortage in the rhodium market that lifted the price to the $13,000 level before risk-off conditions caused the price to evaporate and then snap back. The price moved higher from a low at $575 per ounce in 2016. The bid-offer spread in Rhodium was at $3000 per ounce, up $500 from last week. The width of the spread was more than the bid side of the market when rhodium was bid at $2000 per ounce. Illiquid markets can become untradeable. The price action in rhodium is somewhat like what is going on with some illiquid issues in the bond market these days. The Fed is providing a backstop to eliminate the lack of liquidity, but in rhodium, there is no backstop.

I continue to favor buying physical platinum as well as gold and silver on a scale-down basis. Dealers are experiencing physical shortages as miners and refiners shut down. We have seen substantial dislocations in the price of gold in London versus the COMEX futures prices over the past week. In gold and silver, the GLD, IAU, BAR, and SLV ETF products hold physical bullion and are acceptable proxies for the coins and bars. In platinum, PPLT and PLTM are the proxies. Since a NYMEX platinum futures contract contains 50 ounces of metal, purchasing a nearby futures contract on NYMEX and standing for delivery is a way to avoid significant premiums for the metal. At $745.50 per ounce, a contract on NYMEX has a value of $37,275, after falling to the lowest level just under two decades over the past week.

My advice is the same as last week. Falling rates are bullish fuel for the gold and silver markets. Risk-off threatens to send the price of the precious metals significantly lower, as we witnessed in 2008. I will be using wide scales on bullion and coin purchases as well as unleveraged ETFs that hold bullion. I remain bullish on gold, silver, and platinum, but protecting capital during an unprecedented risk-off period is now the prudent approach. I would only buy the metals on price weakness and leave scales wide until the situation calms. Only trade leveraged products and mining shares on a short-term basis using tight stops.


Energy Commodities

The toxic combination of the spread of Coronavirus and OPEC and the Russian’s decision to flood the world market with crude oil continued to put lots of pressure on the energy commodity. NYMEX WTI crude oil futures rolled from April to May over the past week, and the price was volatile over the past week. The expired April contract probed below the $20 per barrel level on Friday, March 20. Brent crude oil moved higher as the market could be thinking that Russia and Saudi Arabia could rethink the March 6 decision that caused the price to tank. Gasoline plunged, and the gasoline processing spread reflected the fuel’s continued underperformance. Heating oil futures posted a marginal gain as the fuel powers the supply chain. Distillate crack spreads edged higher over the past week. Natural gas is rolling from April to May, and the price edge higher as did ethanol and coal for delivery in Rotterdam. Energy prices remain near the lowest level in years as we head into April next week.

April NYMEX crude oil futures rolled to May and recovered by 6.99% after being a falling knife over the past weeks. After putting in a bearish reversal on the monthly chart in January, the price continued its descent. The crude oil market will put in a bearish reversal on the quarterly chart as it will close below $50.99 per barrel on NYMEX futures on the final trading session in March.

May Brent futures outperformed NYMEX WTI futures and were 13.58% higher since March 18. The price of oil has dropped to a level where the potential for action to stabilize the price by Saudi Arabia, Russia, and the other OPEC nations, together with the US, is rising. May gasoline fell 10.35%, and the processing spread in May posted a 63.62% loss after significant declines in the gasoline futures price and the crack spread over the past weeks. With one out of every four Americans sheltered in place, the demand for gasoline has evaporated, leading the price to the lowest level in years. Gasoline traded below the 40 cents per gallon level. May heating oil futures moved 9.60% higher from the last report moving the heating oil crack spread 12.31% higher since last week. The rebound in heating oil futures could be a sign that demand to keep the supply chain running smoothly has caused some stability over the past week in distillate prices compared to gasoline.

Technical resistance in the May NYMEX crude oil futures contract is at $36.70 per barrel level with support at the $20.52 level, the recent low. The continuous contract traded to a low of $19.46 per barrel over the past week, which is the next level of support. In 2001, the price of NYMEX futures fell to $16.70, which is the next technical level on the downside.  Crude oil open interest declined by 0.61% over the period. The bears have been in control since January 8. Iran continues to stand as a potential problem in the Middle East when it comes to supplies, but Coronavirus has trumped any impact on the oil market. Iran is dealing with a tragic outbreak of the virus as are nations across the globe. As risk-off conditions continue to grip markets across all asset classes, energy had been hit the hardest. The oil-related stocks in the US turned out to be a harbinger of the price destruction in the energy commodity. Oil equities did not move higher with the price of crude oil or the stock market in 2019 and at the start of 2020, and they plunged with the price of petroleum and stocks over the past weeks. The potential for bankruptcies of debt-laden companies in the oil and oil-related sector continues to weight on share prices. A government bailout of the sector was coming closer on March 25, but that may not do anything for equity holders in the current environment. The oil and gas businesses may be a matter of national security for the US, but equity holders should not expect asset protection.

Over half the world’s crude oil reserves are in the Middle East. Political instability in the region always has the potential to impact the price of the energy commodity. Meanwhile, technological advances and regulatory reforms in the US has made the world’s leading economy independent when it comes to energy supplies. With 13 million barrels per day of output, the US produces more oil than either Saudi Arabia or Russia. The Trump administration has encouraged oil and gas production over the past four years. I had been writing that “the 2020 Presidential election will be a referendum on the future of energy policy as the opposition party has embraced the “Green New Deal” that would reduce fracking and energy output when it comes to fossil fuels. The potential for a dramatic shift in US energy policy could cause lots of price volatility in the oil and gas market during the second half of 2020 as the prices could begin to move higher and lower with the political polls in the US. In November, the world’s largest energy-producing nation will decide if it continues to produce or if new regulations cause a sudden decline in output beginning in 2021.” The world will change dramatically as a result of Coronavirus, which is turning out to be a modern-day plague. The energy issue will not be at the forefront during the 2020 election, given the crisis.

Meanwhile, at the new price level in the mid-$20s, US output is likely to drop like a stone as oil companies cannot survive. US politics will play a role in the oil market later in the year, but we are now at a price level that creates an emergency for oil producers in the US. President Trump instructed the Energy Department to purchase crude oil for the Strategic Petroleum Reserve. At the same time, behind the scenes, discussion with the Saudis and Russians could lead to a coordinated production policy at this unprecedented time in history.

Crude oil has gone through significant price declines over the past years but has always found a way to rebound; this time, it could take a long time. The Saudis, Russians, and many other leaders around the world either did not realize or did not care that Coronavirus would be the most significant threat to the world since the Spanish flu that took over fifty million lives from 1918-1920.

The spread between Brent and WTI crude oil futures in May fell to the $3.02 per barrel level for Brent, which was $0.37 below the level on March 18. The May spread moved to a high of $5.40 in early January as tensions between the US and Iran flared in the Middle East. The most recent peak was at $5.22 on March 3. On March 16, the spread moved briefly to a 17 cents per barrel premium for Brent but increased since then. The Brent premium tends to move higher during bullish periods in the oil market and vice versa. While Brent has traded at a premium to WTI since the Arab Spring in 2010, the low price that could lead to US production declines as the Saudis and Russians increase output could lead to a premium for WTI. Over the long-term, WTI had traded at a $2 to $4 premium to the Brent benchmark.

Term structure in the oil market experienced a significant shift as the price of crude oil tanked. The flip from backwardation to contango in the spread reflects the flood of supplies in the crude oil market. Oil traders will be filling tanks and storage all over the world to take advantage of the wide contango with financing rates at historic lows. Cash and carry trades in the oil market are now one of the only profitable areas of the market. The cash and carry trade will lift freight and storage rates. The forward curve in crude oil highlights the current state of contango.

Over the past week, the June 2021, minus June 2020 moved from a contango of $9.07 to the $8.50, a slight decline of $0.57 per barrel. In early January, the spread traded to a backwardation of $6.03, $14.53 per barrel tighter than the level on March 25. With interest rates at almost zero, buying nearby oil, storing and insuring it, and selling forward will be the most popular oil trade. Expect storage around the world to fill up quickly in the current environment pushing freight and storage rates to skyrocket. If Coronavirus continues to weigh on demand, we are likely to see idle ships and tankers become storage facilities for oil. At the same time, contango can continue to move higher, as we witnessed in early 2016, so be cautious with synthetic trades to take advantage of the cash and carry trade. The plunge in the price of oil turned the fundamentals around. A flood of crude oil from Saudi Arabia, Russia, and other oil-producing nations at a time when demand is falling will continue to push contango in both WTI and Brent futures markets higher. Rising contango is a sign of a glut in the oil market. However, it is also a sign that the market expects production to fall significantly. The well-capitalized market participants that build cash and carry positions will receive a massive bonus if the market shifts back to backwardation during the life of their trades. A return of any tightness would allow them to sell their nearby oil in storage at a higher price than it costs to cover deferred short positions. With Iran lurking in the background as a hostile agitator in the Middle East, that scenario is possible. Expect the number of rigs operating in the US to fall significantly, and production to begin to drop precipitously in response to the lowest price levels in years.

US daily production was just below the record high with 13 million barrels per day of output as of March 20, according to the Energy Information Administration. The level of production was at the same level as the previous week. As of March 13, the API reported a decrease of 421,000 barrels of crude oil stockpiles, while the EIA said they rose by 2.00 million barrels for the same week. The API reported a decline of 7.834 million barrels of gasoline stocks and said distillate inventories fell by 3.625 million barrels as of March 13. The EIA reported a decrease in gasoline stocks of 6.20 million barrels and a drop in distillates of 2.90 million barrels. Rig counts, as published by Baker Hughes, fell by 19 last week to 664 rigs in operations as of March 20, which is 160 below the level operating last year at this time. Expect the rig count to drop significantly. The inventory data from both the API and EIA continues to take a back seat to risk-off conditions in markets over the past week. The demand for energy will decline as the economy continues to falter.

OIH and VLO shares bounced since March 18, OIH rose by 28.32%, and VLO moved 13.16% to the upside since last week. Eventual strength in crack spreads could be supportive of the price of VLO stock. OIH was trading at $4.35 per share level on Wednesday. I am holding a small position in OIH. The price is too low at this point to liquidate the position. I will hold the ETF as a long-term position and will look to double it or more if the conditions warrant.

We are short the May $80 put option on VLO at $3.65 per share.



If the shares are below the $80 level, we will assume a long position in VLO shares at $76.35.

We are short the May $70 put option for the same expiration at $6.28. A link to the option is below:



If the price of VLO shares is below $70 on May 15, we will be long the stock at $63.72 per share on this position, and an average of $70.04 per share on the two positions. VLO was trading lower at $39.63 per share on Wednesday. As I wrote, “If you are not comfortable assuming this level of risk, please do not follow this recommendation.”


April natural gas futures fell to the lowest level since 1995 on March 23 when the price reached $1.519 per MMBtu. Nearby April futures are rolling to May and were at $1.7140 on March 25, which was 4.83% higher than on March 18. The May futures contract traded to a high of $2.411 on November 5 and 6 and has made lower highs and lower lows throughout the winter months. Support now stands at $1.587, the recent low. While technical and fundamental factors continue to favor lower prices, wild market conditions could cause significant price swings.

Natural gas followed through on the downside after putting in a bearish reversal trading pattern on the weekly chart during the week of January 13. Every attempt at a recovery ran out of buying throughout the winter season. The injection season will begin soon after last week’s small withdrawal.

Source: EIA

The EIA reported a withdrawal of 9 bcf, bringing the total inventories to 2.034 tcf as of March 13. Stocks were 76% above last year’s level and 16% above the five-year average for this time of the year. Last week’s report was bearish, from a fundamental perspective. Natural gas stocks fell to a low of 1.107 tcf in March 2019. Stocks should remain slightly above 2.0 tcf level at the end of the withdrawal season. This week the consensus expectations are that the EIA will report a two bcf withdrawal from stocks for the week ending on March 20. The EIA will release its next report on Thursday, March 26, 2020.  Fundamentals say lower in natural gas, but we are at a time of the year when the energy commodity tends to make seasonal lows, which we may have seen at $1.519 on March 23, time will tell. Demand for all energy will continue to decline as the economy has ground to what is an unprecedented halt.

Open interest fell by 7.42% in natural gas over the past week. The metric has declined in all energy futures markets, reflecting the sudden halt in economic activity. Technical resistance is now at $2.044 per MMBtu level on the May futures contract with support at $1.587 per MMBtu, the low from March 23, which stands as technical support on the May futures contract. The next level on the downside is at $1.335 when it comes to the continuous futures contract on a long-term basis. Price momentum and relative strength on the daily chart were below neutral conditions as of Wednesday. Risk-off conditions are causing activity to slow dramatically.

May ethanol prices moved 3.75% lower over the past week. Open interest in the thinly traded ethanol futures market moved 0.22% higher over the past week. With only 455 contracts of long and short positions, the biofuel market is untradeable. The KOL ETF product rose by 9.75% compared to its price on March 18. The price of May coal futures in Rotterdam moved 8.52% higher over the past week.

On Tuesday, March 24, the API reported a 1.247-million-barrel decline in crude oil inventories for the week ending on March 20. Gasoline stocks fell by 2.622 million barrels, while distillate stockpiles fell 1.90 million barrels over the period. The EIA said crude oil stocks rose 1.60 million barrels. Gasoline inventories were 1.50 million barrels lower, while distillate stocks fell 700,000 barrels. The API and EIA inventory reports did nothing to impact the price of the energy commodity as we continue to face a global emergency. The slowdown in the US and global economy could cause inventories to continue to rise, but lower US output in the face of falling prices should slow the flow of the energy commodity into storage. At the same time, the cash and carry trade could begin to impact inventory data. The oil futures market did not care about the stock numbers this week.

In natural gas, the price fell to the lowest level since 1995 at $1.519 per MMBtu on March 23.


As the forward curve over the coming months shows, the price at $1.714 in May on the settlement price on March 25, was 7.90 cents per MMBtu higher than on March 18. The price bounced over the past week. The price is in contango where deferred prices are higher than levels for nearby delivery, reflecting the condition of oversupply and high level of inventories compared to past years as we are in the 2020 injection season. Natural gas stockpiles will start the 2020 injection season at a level where a build to over four trillion billion cubic feet and a new record high is possible in November, which could keep the price from running away on the upside in the leadup to the winter of 2020/2021. However, production could grind to a halt given the lack of workers during the shutdown period in many states and because of the low level of prices that make output uneconomic. The debt-laden oil and gas businesses in the US could receive support from the government to keep energy output flowing, but demand destruction will continue. The US government is likely to support the energy sector as a matter of national security.

I have been taking profits quickly and stopping losses looking for a 1:2 risk-reward ratio on forays into the crude oil futures market. UCO and SCO products can be helpful for those who do not trade futures. In natural gas, UGAZ and DGAZ attract lots of volume and are excellent short-term proxies for natural gas futures. I will not take positions in leveraged products overnight and will only day trade, given the volatility in the markets.  Additionally, the potential that markets could close presents a risk of becoming trapped in a position, which is the reason I am going home flat each night.

We are holding a long position in PBR, Petroleo Brasileiro SA. PBR shares tanked with oil and the Brazilian real. At $5.80 per share, PBR was 34.57% higher than on March 18. The shares of the company are too low to sell at the current price. I have a small position that I will hold as a long-term investment and look to double up or more when the market conditions warrant.

The world will continue to focus on slowing the spread of Coronavirus, and that will take time. It is likely that governments, regardless of political ideologies and past relationships, are working together to save the lives of citizens. In the oil market, I expect a new level of cooperation between the world’s three leading crude oil producers. Between Presidents Trump and Putin and Crown Prince Mohamed bin Salman of Saudi Arabia, I expect a deal to stabilize the price of crude oil out of a need rather than a political desire. When it comes to natural gas, the laws of supply and demand are likely to find a level where production falls to reflect the current price level and demand destruction. I would be extremely cautious with any long or short positions in the energy sector over the coming days and weeks. The potential for surprising news items that push prices higher or lower has increased to levels never seen. Expect the unexpected and keep any stops very tight and take profits when they are on the table in any new risk positions. It is possible that fundamental supply and demand data will become unavailable for a time. Avoid taking a long-term view. There is no telling when the current world crisis will end, and the aftermath will be a new world when it comes to picking up the economic pieces that will be unprecedented.



While the world continues to scramble to address the growing number of cases and spread of Coronavirus, the winter season ended, and spring began last weekend. Farmers in the US and throughout the northern hemisphere will be planting the crops that feed the world. The 2020 crop year begins with a massive challenge that could impact planting as the virus spreads and could affect the workforce. We are at the time of the year, where uncertainty begins to increase as the weather conditions over the coming weeks and months will determine the crop at harvest time. Over the past week, all of the leading gain futures markets posted price gains. As South America is also facing a challenge with the virus, a bottleneck at ports could impact the flow of agricultural products to consumers around the globe as the southern hemisphere’s harvest is underway.



May soybean futures rose by 6.78% over the past week and was at $8.8150 per bushel on March 25. Open interest in the soybean futures market fell by 2.68% since last week. Price momentum and relative strength indicators were above neutral readings on Wednesday when it comes to the daily chart.

The May synthetic soybean crush spread rose over the past week and was at the $1.1925 per bushel level on March 25, up 0.50 cents since March 18, which I viewed as a bullish signal last week and continue to believe will support the price of the oilseed futures. The crush spread rose to a high of $1.4275 on March 23 and is a real-time indicator of demand for soybean meal and oil. The crush moved higher on the back of demand for soybean meal. Price trends in the crush spreads can cause buying or selling in the raw oilseeds at times. Any significant moves in the crush spread are likely to translate into price movement in the soybean futures. The decline in the crush spread since late January was a confirmation of the recent bearish trend. The recent rise is supportive of higher price levels for the oilseed. As I have written in previous reports, I believe soybean futures are in the buy-zone at prices below $9 per bushel, but risk-off has pushed the price lower. The rise in the crush spread was a bullish sign for bean prices. Coronavirus will not lower the demand for food as people all over the planet require daily nutrition.

May corn was trading at $3.4850 per bushel on March 25, which was 3.95% higher on the week. Open interest in the corn futures market fell by 4.00% since March 18. Technical metrics remained below neutral readings in the corn futures market on the daily chart as of Wednesday. The price of May ethanol futures fell by 3.75% since the previous report on the back of crude oil and gasoline prices. May ethanol futures were at 95 cents per gallon on March 25. The spread between May gasoline and May ethanol futures was lower at 34.46 cents per gallon on March 25 with ethanol at a premium to gasoline. The spread was down 1.98 cents since last week as gasoline underperformed the biofuel.

May CBOT wheat futures were 14.12% higher since last week. The May futures were trading $5.8000 level on March 25. Open interest fell by 8.79% over the past week in CBOT wheat futures. We typically see open interest rise in all of the grain markets at this time of the year as farmers hedge the 2020 crops. However, this is far from a typical time in the world. As Coronavirus rages, it is likely to impact production. Technical metrics in CBOT wheat were in overbought on Wednesday. March wheat traded to a high of $5.925 on January 22, just one-half cent below the technical resistance on the longer-term charts, but the price failed, leading to the correction over the past weeks. The first level of support is now at the $4.9175 per bushel level, the recent low. Wheat has been rebounding steadily since March 16.

As of Wednesday, the KCBT-CBOT spread in May was trading at a 79.00 cents per bushel discount with KCBT lower than CBOT wheat futures in the May contracts. The spread widened by 17.25 cents since March 18. The long-term norm for the spread is a 20-30 cents premium for the Kansas City hard red winter wheat over the CBOT soft red winter wheat. The CBOT price reflects the world wheat price, and it is the most liquid wheat futures contract. The KCBT price is often a benchmark for bread manufacturers in the US who purchase the grain from suppliers. As I have been writing, “at a discount to CBOT, consumers are not hedging their requirements for KCBT, which is a sign that they continue to buy on a hand-to-mouth basis.”  The spread continues to be at a level that is bearish for the wheat market. Any sudden problem in the wheat market that causes consumer hedging to increase could result in a dramatic change in the spread between the hard and soft winter wheat futures contracts. The spread moved away from the long-term average over the past week.

I will continue to build long core positions in futures and the CORN, WEAT, and SOYB ETF products over the coming weeks on price weakness. The trade deal resulting in a de-escalation of the trade war is supportive of the prices of grains. The outbreak of the Coronavirus had been a bearish factor for the grain markets, but less so than in other markets. The uncertainty of the 2020 crop year could add volatility to the market as the spring planting season gets underway. I had been a scale-down buyer of beans, corn, and wheat on price weakness, leaving plenty of room to average down by using wide scales in the current environment. I believe grains have the best upside potential over the coming weeks and months as the growing world demand for food limits the downside. I will take profits on rallies in the current environment and raise stop levels on long core positions to protect capital.

The long-term average for the corn-soybean spread is around the 2.4 bushels of corn value in each bushel of soybean value level. When the spread is higher, farmers tend to plant more beans than corn, and when it is lower than the 2.4:1 average, they tend to plant more corn than soybeans on their acreage.  Farmers are now making final decisions on how best to utilize their acreage during the upcoming 2020 planting season.

Source: CQG

The chart of the November 2020 soybean futures divided by December 2020 corn futures shows that the ratio moved lower over the past week and was at the 2.3882:1 level on March 25, up 0.0178 since last week. The ratio is just below the long-term norm. On March 25, the spread was at a level where farmers will plant slightly more corn than soybean crops when it comes to the current planting season at under the 2.4:1 level. Fewer soybeans could lead to a shortage and higher prices for the oilseed. A combination of the rise of the crush spread and the decline in the corn-soybean ratio has been a bullish sign, and a reason stay with soybean longs and add on price weakness at this time of the year. However, I would raise stops on existing long positions.

The uncertainty of the 2020 crop year is likely to add price variance to the grain futures markets over the coming weeks. However, Coronavirus is the great unknown for all markets. At the same time, the uncertainty of the weather during the coming crop year could create the ideal conditions for sudden sharp rallies. Last week I wrote, “I believe that any weakness in grains could offer some of the most compelling buying opportunities in the commodities asset class over the coming weeks. Nothing has changed since last week when it comes to my view of the grain markets.”

Be careful in all markets but remember that the world depends on the US and other nations that produce the crops that fulfill nutritional requirements. Grains and oilseeds could have some degree of immunity from the deflationary spiral as governments around the globe must feed the people.


Copper, Metals, and Minerals

COMEX copper posted a gain over the past week, but the one-day lag in LME prices distorts the performance of the sector when it comes to copper and the other base metals that trade on the London Metals Exchange. Lumber and uranium moved higher after recent losses, but the Baltic Dry Index and iron ore fell from last week’s level. The prices of industrial commodities that are the building blocks of infrastructure reflect the environment where global business activity has ground to a virtual halt.

Copper rose 2.46% on COMEX, after probing below the $2 per pound level on May 19 before recovering. The red metal posted an 8.02% loss as of March 24 on the LME since the last report. Open interest in the COMEX futures market moved 14.88% lower since March 17. May copper was trading at $2.2040 per pound level on Wednesday after hitting a low of $1.9725. Copper is a leading barometer for the overall health and wellbeing of the Chinese and global economies. Over the past week, LME stockpiles continued to rise after the sudden jump in recent weeks.

Just as in the crude oil market, copper put in a bearish reversal on the monthly chart in January. A close below $2.5150 per pound at the end of March would put in the same bearish price reversal pattern on the quarterly chart. Copper was far below the level that would create a bearish reversal on the long-term chart on Wednesday. The target on the downside in the copper market is now at the early 2016 low of $1.9355 per pound. As the price of oil declined to a multiyear low, it began to weigh on copper and other base metals as energy is a significant input in the production process. However, Chinese demand will continue to be the most significant factor when it comes to the path of the price of copper and other base metals and industrial commodities over the coming weeks and months. Keep in mind that during the 2008 financial crisis, copper fell to a bottom of $1.2475 per pound.

The LME lead price moved lower by 4.21% since March 17. The rise in demand for electric automobiles around the world is supportive of lead in the long term as the metal is a requirement for batteries, but Coronavirus continues to weigh on the price of lead. The price of nickel moved 6.20% lower over the past week. The export ban in Indonesia began on January 1, 2020 but has had little impact on the price of the nonferrous metal so far this year. Tin fell 7.21% since the previous report. Aluminum was 4.89% lower since the last report. The price of zinc fell by 3.98% since March 17. Zinc was at the $1836 level on March 24. The rising number of cases of Coronavirus in the UK could also impact the operations of the London Metals Exchange over the coming days and weeks. The impact of Coronavirus on the global economy is the most significant of our lifetime, which is bearish for the prices of the nonferrous metals.

May lumber futures were at the $311.60 level, up 2.70% since the previous report. Interest rates in the US will eventually influence the price of lumber. The current environment does not support new home and infrastructure building as the US and world deal with the crisis. The price of uranium for May delivery was up 5.38% at $25.45 per pound. The volatile Baltic Dry Index fell 1.47% since March 18 to the 603 level after significant losses throughout the winter months. June iron ore futures were 4.53% lower compared to the price on March 18. Open interest in the thinly traded lumber futures market rose 3.30% after significant consecutive losses over the past four weeks. Risk-off conditions continued to weigh on the price of lumber futures.

LME copper inventories moved 2.67% higher to 226,200 metric tons since last week after a 15.7% rise in the last report. COMEX copper stocks rose by 5.11% from March 17 to 29,088 tons. Lead stockpiles on the LME were up 0.67%, while aluminum stocks were 13.12% higher. Aluminum stocks rose above one million tons to the 1,100,675-ton level. Zinc stocks rose by 0.68% since the last report. Zinc stockpiles experienced a significant rise in inventories in recent weeks. Tin inventories fell by 5.09% since March 17 to 6,250 tons. Nickel inventories were 0.80% lower compared to the level on March 17. As Coronavirus impacts the UK, we could see an absence of stock data over the coming weeks. The LME went electronic and stopped ring dealing over the past week.

The volatility in the US dollar created dislocations in base metals prices over the past week, but risk-off over Coronavirus was the most significant factor for the sector.

We own the January 2021 $15 call on X shares at $3.30 per share, and it was trading at 15 cents on March 25, down five cents since last week. The details for the call option are here:



US Steel shares were at $5.87 per share and moved 19.8% higher since last week.

FXC was trading at $7.25 on Wednesday, $1.94 higher since the previous report. I continue to maintain a small long position in FCX shares. I will not sell the stock at this level, but I am on the sidelines when it comes to adding to the position.

The base metals and other industrial commodities reflect the halt of the global economy. I would avoid any new positions in the base metals or industrial commodities during this unprecedented period. The lower price of oil causes output costs to decline, which takes a toll on prices. Volatility in the currency markets could also impact prices. I am concerned that we could see a sudden move lower in copper, so I am sitting on the sidelines aside from some small positions and am only day trading with tight stops. I would keep all risk positions at minimal levels in the current environment.


Animal Proteins

Cattle and hog prices bounced higher over the past week. Animal proteins feed the world. The sector has not been immune to risk-off conditions on the back of lockdowns in the face of Coronavirus. We are coming into the 2020 grilling season, which is the time of the year where demand peaks between the Memorial Day and Labor Day weekends. However, this is anything but a typical year in markets. The prices of the meat futures fell sharply, but they have recovered from the recent lows.

June live cattle futures rolled to June and were at 96.325 cents per pound level up 11.62% from March 18. Technical resistance is now at $1.0035 per pound. Technical support stands at around 85.25 cents per pound level. Price momentum and relative strength indicators were rising above neutral readings on Wednesday after a decline to deeply oversold readings. Open interest in the live cattle futures market moved 7.98% lower since the last report after an over 10% decline last week.

April feeder cattle futures rolled to May and outperformed live cattle as they rose by 18.96% since last week after a period of extreme selling pressure. April feeder cattle futures were trading at the $1.29100 per pound level with support at $1.07475 and resistance at $1.49400 per pound level. Open interest in feeder cattle futures fell by 7.98% since last week. While live cattle futures have a delivery mechanism, feeder cattle are a cash-settled futures contract. Sometimes live cattle prices lead feeder cattle prices, while at others, the opposite occurs.

Lean hog futures underperformed the live cattle futures since the previous report. The active month June lean hogs were at 71.750 cents on March 25, which was 5.55% higher from the level on March 18. Price momentum and the relative strength index were rising from oversold readings on Wednesday. Support is at 66.025 cents with technical resistance on the June futures contract at 80.35 cents per pound level.

The forward curve in live cattle is in backwardation from April 2020 until June 2020, and the market shifts to contango from June 2020 through April 2021. Backwardation returns until August 2021. The Feeder cattle forward curve is in backwardation from March through April and then shifts to contango from April through November 2020 before it tightens slightly until January 2021. The forward curves did not experience any significant changes over the past week in the cattle futures market.

In the lean hog futures arena, there is backwardation from April 2020 through May, and contango from May 2020 until July 2020. From July 2020 through December 2020, the curve is in backwardation, but contango returns from December 2020 through July 2021. The price action and forward curves reflect abundant supplies and anticipation of weak demand for the animal proteins.

The long-term average for the spread between live cattle and lean hogs is around 1.4 pounds of pork for each pound of beef. Over the past week, the spread between the two in the June futures contracts moved higher as the price of live cattle outperformed lean hogs on a percentage basis.

Source: CQG

Based on settlement prices, the spread was at 1.34250:1 compared to 1.2670:1 in the previous report. The spread decreased by 7.55 cents as live cattle rallied more than lean hogs over the past week. The spread moved towards the historical norm on the June futures contracts.

The meat markets will turn their focus to the upcoming 2020 grilling season of peak demand in the US, which begins in late May and runs through early September. However, risk-off conditions remain a concern. Falling currencies in the emerging markets could continue to weigh on the prices of animal proteins, but bottlenecks, when it comes to exports, could work the other way. Both Argentina and Brazil are significant cattle producers, and the falling peso and real are bearish for the price of meats as they cause production prices to decline and exports from the two South American countries more competitive in global markets. At the same time, grain prices are stable, which means that feed prices will allow producers to raise animals to full weights. Last week I wrote, “While it is always a challenge to pick a bottom in markets, cattle and hog prices are at the lowest levels in years going into the grilling season in the US. I continue to believe we will eventually see recoveries in cattle and hog prices, and the COW ETN product, as we move closer to the season of peak demand. The trade agreement between the US and China could boost US exports of beef and pork to China.” Over the past week, prices improved.


Soft Commodities

Since March 18, coffee, sugar, and FCOJ prices improved, while cotton and cocoa continued to decline. Soft commodities have not been immune to risk-off conditions over the past month.

May sugar futures rose 6.94% since March 18, after falling over recent weeks, as the price of the sweet commodity was around the 11.41 cents per pound level on the active month futures contract. Technical resistance is at 12.00 cents with support at the recent low of 10.44 cents. Sugar made a new high at 15.90 cents on February 12 on the continuous contract, but the price collapsed on the back of risk-off conditions. The decline in the price of crude oil and ethanol weighed on sugar as the primary ingredient in ethanol in Brazil is sugarcane. The value of the January Brazilian real against the US dollar recovered a bit over the past week and was at the $0.199600 level against the US dollar on the March contract, 4.09% higher over the period. The Brazilian currency recently fell below its multiyear lows, which is a factor for the price of sugar and other commodities where Brazil is a leading producer and exporter. The currency fell to a new low of $0.19035 as the slow descent continued to eat away at the value of Brazil’s currency. Coronavirus has weighed heavily on all emerging markets. Anyone with a risk position in sugar should keep an eye on the price action in the Brazilian real. Price momentum and relative strength on the daily sugar chart were turning higher in deeply oversold territory as of March 25. The metrics on the monthly chart crossed lower, but the quarterly chart was still at an oversold condition. Sugar made a new high above its 2019 peak before the recent correction. Risk-off conditions stopped the rally. Open interest in sugar futures was 3.33% lower since last week. Open interest had been rising with the price, which was a bullish technical factor; the decline with the falling price is not technically bearish. Sugar rallied to new highs as drought conditions in Thailand created the supply concerns that lifted the price of sugar futures. The recent correction in sympathy with the risk-off conditions in markets across all asset classes, which likely chased any speculative longs from the market. The long-term support level for the sweet commodity is at the 2018 low of 9.83 cents per pound.

May coffee futures moved 19.55% higher since March 18. May futures were trading at the $1.29950 per pound level. The first level to watch on the downside is $1.0140. Below there, support is at around 97.40 cents on the continuous futures contract. Resistance is now at $1.3680 on the nearby May contract. I continue to favor coffee on the long side, but coffee can be a highly volatile commodity in the futures market, as we have witnessed over the past weeks and months. Our stop on the long position in JO is at $27.99, but in the current conditions, I would increase the stop and exercise extreme caution. JO was trading at $40.57 on Wednesday. Open interest in the coffee futures market was 4.06% lower since last week. As I wrote last week, “I started selling on a scale-up basis at around $1.10 but will continue to hold a very small core long position. I have not added to replace length during the most recent price decline in light of risk-off conditions.” I am working a tight and rising stop, given the current market conditions. I continue to hold a small core long position in coffee.

Supply concerns over Brazilian production in the off-year for crops had been supportive of the price of the soft commodity from mid-October through December. The ICO has warned that a deficit between supply and demand could be in the cards for the market because of the 2019/2020 crop year. However, those fears subsided, causing the price of the soft commodity to decline to a level where buying returned to the market. Coffee had made higher lows since reaching 86.35 cents in mid-April. The ultimate upside target is the November 2016, high at $1.76 per pound. Price momentum and relative strength were rising towards overbought levels on Wednesday. On the monthly and quarterly charts, the price action was neutral to bullish. As I wrote in previous reports, “The risk rises with the price in the volatile coffee futures market. We should expect wide intraday trading ranges in the coffee futures market.”  Coffee can be a wild bucking bronco when it comes to the price volatility of the soft commodity. Bottlenecks on South American ports could prove highly supportive of coffee prices as they could create a shortage of the beans.

The price of cocoa futures edged lower over the past week but could be near a low. On Wednesday, May cocoa futures were at the $2248 per ton level, 1.58% lower than on March 18. Open interest fell by 10.37%. Relative strength and price momentum remain in oversold territory on March 25. The price of cocoa futures rose to a new peak and the highest price since September 2016 at $2998 per ton on the March contract on February 13. We are long the NIB ETN product. NIB closed at $26.35 on Wednesday, March 25. I am using a very tight stop as market volatility has been wild but continue to believe that the price of cocoa will move higher. As the Ivory Coast and Ghana attempt to institute a minimum $400 per ton premium for their exports of cocoa beans, it should provide support to the cocoa market. The level to watch on the upside is now at $2400 per ton. On the downside, short-term technical support now stands at $2183 per ton. The potential for Coronavirus to disrupt production in West Africa is high, which could lead to shortages of beans over the coming months. The health systems in producing countries like the Ivory Coast, Ghana, Nigeria, and others are not sufficient to treat patients or prevent the spread of the virus. Africa could suffer tragic consequences over the coming weeks and months. The flow of cocoa beans to the world could suffer as bottlenecks at ports could reduce exports.

May cotton futures fell 5.65% over the past week after recent declines on the back of continued concerns about the Chinese and global economies. May cotton was trading at 53.44 cents on March 25, after falling to the lowest price since 2009. On the downside, support is at 50.00 cents per pound. Resistance stands at 55.00 cents per pound. Open interest in the cotton futures market fell by 7.37% since March 17. Price momentum and relative strength metrics were in oversold territory on Wednesday.

The spread of the virus continues to weigh on the price of the fiber. However, at the lowest price in eleven years, cotton could be near the bottom. I am bullish on the prospects for the price of cotton at just over 50 cents per pound but would use tight stops on any long positions.

May FCOJ futures posted a significant gain since last week, making it the best performer in the sector for the second consecutive week, by far. On Wednesday, the price of May futures was trading around $1.2110 per pound. FCOJ nearby futures moved 24.59% higher over the past week as OJ burst through the $1 per pound level. Support is at 92.15 cents level. Technical resistance is at $1.3100 per pound. There was a double top formation on the daily chart at $1.0275 per pound, which gave way leading to a sharp recovery. Open interest fell 9.44% since March 17. The Brazilian currency was weighing on the FCOJ futures, but bottlenecks at the ports work in the opposite direction. $1 per pound had been a critical point for the OJ futures, and the price rose substantially above that level over the past week.

Soft commodities can exhibit wild volatility at times. It is not unusual for them to double, triple, or halve in price. In the current environment, I suggest short-term positions with very tight stops for anyone looking to trade in any of these markets. We could see some significant moves in these commodities that feed and clothe the world over the coming weeks.


A final note

The most important thing to remember during times of crisis is not to panic. We must all follow the instructions and advice of government leaders, scientists, and medical professionals. Social distancing will slow the spread of the virus. When it comes to business, I expect that the US will slowly get back to work sooner rather than later after this challenging period. People will contract the virus. Sadly, the most vulnerable have a poor prognosis without treatments and a vaccine. However, scientists and medical professionals are working tirelessly for the answers that the world requires, and they will succeed. Science moves a lot slower than markets, but it has found cures and treatments for so many viruses and diseases in the past, and they will do the same for Coronavirus. Be positive!

When it comes to markets, be cautious, but be proactive. A plan for all investments and trading positions is critical in the current environment. Make sure that you have a logical approach to risk-reward. Do not allow short-term trades to become long-term investment positions. Markets can remain illogical far longer than we can stay solvent. I believe that the necessary government and central bank policies will push the price of gold a lot higher, perhaps to levels that analysts cannot imagine. Zero and negative interest rates, a tidal wave of liquidity via unprecedented amounts of quantitative easing, and government bailouts will push deficits to incredibly high levels. The US deficit was at $21 trillion before the crisis, and I would not be surprised to see it double or more. All of the treatments for the economy will weigh on the value of currencies that derive value from the full faith and credit of the governments that print the legal tender. The dollar may be the king of currencies as it rose to its highest level since 2002 over recent days. However, at the same time, the dollar is losing value against the oldest means of exchange in the world. Gold stands to be the biggest winner. In a world filled with fear and uncertainty, gold has always been a store of value. The policies that are flooding the global financial system with liquidity are the most bullish factor for the yellow metal in our lifetime. Silver should also benefit from the rise in the price of the yellow metal.

Next week, there will be no weekly report as I will be sending out quarterly reports starting on April 1. You can always contact me by email or in the chat area with any questions. The next weekly report will be on Wednesday, April 8.

Be safe, be careful, but be optimistic, this too shall pass.


As I wrote over the past weeks, I plan to increase the price of The Hecht Commodity Report soon. However, all of my current loyal subscribers will never experience an increase in their monthly or annual subscription rates. I will grandfather all subscribers at their current rates for as long as they maintain their subscriptions. Thank you for your support.


Please keep safe and healthy in this environment.




Until next week,


Andy Hecht


Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal.  This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.